USD/JPY Forecast: Rising as Investors Turn to Safe-haven Yen Amid Renewed US Banking Sector Worries

Highlights

• Yen seen as a safe-haven option as investors turn cautious
• First Republic Bank considers options to turn its business around
• Markets pricing in lower chance of rate hike

Overview

The Dollar/Yen is edging lower on Wednesday despite a slight rise in U.S. Treasury yields. Throughout the week, investors have been evaluating the Federal Reserve’s interest rate policies and keeping an eye on economic data.

However, today’s early price action suggests that investors are turning towards the Yen as a safe-haven option. This is because there are renewed worries about the U.S. banking sector, and poor U.S. economic data has lowered the investors’ appetite for taking risks.

At 08:25 GMT, the USD/JPY is trading $133.675, down $0.037 or -0.03%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.73, up $0.40 or +0.58%.

Renewed Banking Sector Concerns

First Republic Bank’s shares fell by almost 50% after it reported a $100 billion drop in deposits due to lost confidence in the banking sector. The bank is considering options such as creating a “bad bank” or selling assets to turn its business around.

Rate Hike Expectations Decrease Slightly

The markets are pricing in a 76% chance of a 25 basis point hike when the Federal Reserve meets next week, down from 90% at the start of the week. Investors are expecting a rate hike but will look to the central bank for guidance on when rate cuts can be expected.

Federal Reserve to Release Bank Review

The Federal Reserve will release its internal review of its supervision of Silicon Valley Bank on Friday. Economic data on durable goods orders, mortgage rates, gross domestic product, and the personal consumption expenditure price index will also be released this week.

BOJ Faces Challenges in Raising Rates

Former top currency diplomat of Japan, Hiroshi Watanabe, stated on Wednesday that the Bank of Japan (BOJ) is likely to maintain its current monetary policy on Friday and may face difficulties in raising interest rates this year due to the weak economy.

Despite inflation surpassing the BOJ’s 2% target, some market players believe that the central bank may discontinue its controversial bond yield control policy as soon as this week’s meeting.

Technical Analysis

From a daily technical viewpoint, the USD/JPY is trading on the strong side of its daily PIVOT at $133.443, but under the R1 level at $137.245. The long-term technicals appear to be in favor of an upside move, but the short-term outlook indicates potential weakness. Trader reaction to $133.443 will set the tone on Wednesday.

A sustained move over the PIVOT at $133.443 will indicate the buying is getting stronger. This could lead to a near-term acceleration into R1 at $137.245.

However, a sustained move under the PIVOT at $133.443 will put the USD/JPY in a weak position. This will put S1, or $128.973 on the radar.

For a look at all of today’s economic events, check out our economic calendar.